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Questions and Answers
What happens to equilibrium quantity when both demand and supply increase by the same amount?
What happens to equilibrium quantity when both demand and supply increase by the same amount?
In which scenario does both equilibrium quantity and price increase?
In which scenario does both equilibrium quantity and price increase?
If supply increases more than demand, what is the effect on equilibrium price?
If supply increases more than demand, what is the effect on equilibrium price?
What must be known to determine the effect on equilibrium price when both demand and supply change simultaneously?
What must be known to determine the effect on equilibrium price when both demand and supply change simultaneously?
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Which of the following is NOT a determinant of demand?
Which of the following is NOT a determinant of demand?
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If an increase in both demand and supply occurs but the magnitude of changes is unequal, what can be said about the equilibrium price?
If an increase in both demand and supply occurs but the magnitude of changes is unequal, what can be said about the equilibrium price?
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What are the determinants of supply?
What are the determinants of supply?
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When both demand and supply increase, what is true about the effect on equilibrium quantity?
When both demand and supply increase, what is true about the effect on equilibrium quantity?
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What happens to the demand for day-care services as more mothers return to the labor force?
What happens to the demand for day-care services as more mothers return to the labor force?
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How does government subsidy for day-care operators affect the supply in the market?
How does government subsidy for day-care operators affect the supply in the market?
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What effect do increased penalties for marijuana transactions have on the market demand?
What effect do increased penalties for marijuana transactions have on the market demand?
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How will a significant reduction in streaming costs affect the supply of music streaming?
How will a significant reduction in streaming costs affect the supply of music streaming?
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What is likely to happen to the equilibrium price of organic vegetables if demand increases while regulations tighten?
What is likely to happen to the equilibrium price of organic vegetables if demand increases while regulations tighten?
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How does the return of mothers to the labor force affect the equilibrium quantity of day-care services?
How does the return of mothers to the labor force affect the equilibrium quantity of day-care services?
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What combined effect does stricter marijuana legislation have on the supply and demand balance?
What combined effect does stricter marijuana legislation have on the supply and demand balance?
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If a news report highlights the health benefits of vegetarianism, what is the likely market reaction for organic vegetables?
If a news report highlights the health benefits of vegetarianism, what is the likely market reaction for organic vegetables?
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What is a price ceiling?
What is a price ceiling?
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Why are price ceilings implemented?
Why are price ceilings implemented?
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What is the expected effect on the equilibrium price and quantity for day-care services when more mothers return to the labor force and subsidies for operators are introduced?
What is the expected effect on the equilibrium price and quantity for day-care services when more mothers return to the labor force and subsidies for operators are introduced?
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What is a potential consequence of implementing a price ceiling?
What is a potential consequence of implementing a price ceiling?
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How can shortages be allocated when a price ceiling is implemented?
How can shortages be allocated when a price ceiling is implemented?
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How does the increase in penalties for marijuana affect its market equilibrium?
How does the increase in penalties for marijuana affect its market equilibrium?
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What likely outcome occurs in the music streaming market due to reduced processing costs and increased consumer streaming?
What likely outcome occurs in the music streaming market due to reduced processing costs and increased consumer streaming?
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What happens to rental units when a rent control price ceiling is set below the equilibrium price?
What happens to rental units when a rent control price ceiling is set below the equilibrium price?
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What is likely to happen to equilibrium price and quantity when there is a simultaneous increase in demand and supply?
What is likely to happen to equilibrium price and quantity when there is a simultaneous increase in demand and supply?
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What impact do tighter regulations on the definition of organically grown products have on the organic vegetable market?
What impact do tighter regulations on the definition of organically grown products have on the organic vegetable market?
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In the case of a simultaneous increase in demand and a decrease in supply, what is the expected effect on price and quantity?
In the case of a simultaneous increase in demand and a decrease in supply, what is the expected effect on price and quantity?
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What is one common example of a price ceiling?
What is one common example of a price ceiling?
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What effect does a simultaneous decrease in demand and an increase in supply have on equilibrium price and quantity?
What effect does a simultaneous decrease in demand and an increase in supply have on equilibrium price and quantity?
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What effect does the influx of mothers into the labor force have on the market for day-care services?
What effect does the influx of mothers into the labor force have on the market for day-care services?
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What is one major issue with how markets operate?
What is one major issue with how markets operate?
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What would likely happen to the equilibrium conditions in the marijuana market if public awareness of legalization efforts increases?
What would likely happen to the equilibrium conditions in the marijuana market if public awareness of legalization efforts increases?
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When there is a simultaneous decrease in demand and supply, how do equilibrium price and quantity change?
When there is a simultaneous decrease in demand and supply, how do equilibrium price and quantity change?
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Which of the following is NOT a method of allocating shortages?
Which of the following is NOT a method of allocating shortages?
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What would likely occur in the market for day-care services if there is an increase in demand and supply due to more mothers working and government subsidies?
What would likely occur in the market for day-care services if there is an increase in demand and supply due to more mothers working and government subsidies?
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When more consumers stream music content directly, what are the probable effects on the streaming services?
When more consumers stream music content directly, what are the probable effects on the streaming services?
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What is the total revenue received by producers when the equilibrium price is $4 and the quantity is 6 million kilos?
What is the total revenue received by producers when the equilibrium price is $4 and the quantity is 6 million kilos?
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What overall effect could increased vegetarianism have on the market for organic vegetables?
What overall effect could increased vegetarianism have on the market for organic vegetables?
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If the government increases penalties for marijuana, causing a simultaneous decrease in demand, what is the impact on price and quantity?
If the government increases penalties for marijuana, causing a simultaneous decrease in demand, what is the impact on price and quantity?
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If the government imposes a production quota of 6 million tonnes, what will the new price per tonne be?
If the government imposes a production quota of 6 million tonnes, what will the new price per tonne be?
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What result is anticipated in the music streaming market with lower processing costs and increased consumer demand?
What result is anticipated in the music streaming market with lower processing costs and increased consumer demand?
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What quantity will the government buy if the demand quantity is 4 million bushels and the supply is 6 million bushels?
What quantity will the government buy if the demand quantity is 4 million bushels and the supply is 6 million bushels?
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In response to increased vegetarianism and tighter organic regulations, what change can be expected in the organic vegetable market?
In response to increased vegetarianism and tighter organic regulations, what change can be expected in the organic vegetable market?
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If an excise tax of $2 is imposed on a product originally priced at $8, what will the new equilibrium price be?
If an excise tax of $2 is imposed on a product originally priced at $8, what will the new equilibrium price be?
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How does an excise tax affect the equilibrium quantity of a product?
How does an excise tax affect the equilibrium quantity of a product?
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What is the outcome of imposing a production quota on the price of a product?
What is the outcome of imposing a production quota on the price of a product?
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What will the total sales revenue be if 6 million tonnes are sold at $600 per tonne?
What will the total sales revenue be if 6 million tonnes are sold at $600 per tonne?
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Which of the following best describes a subsidy?
Which of the following best describes a subsidy?
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Study Notes
Learning Objectives
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Understand that the forces of supply and demand still apply even in non-competitive markets
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Explain how simultaneous supply and demand changes impact equilibrium price and traded quantity
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Explain why markets sometimes don't function optimally
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Describe how price ceilings lead to shortages
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Explain how price floors result in surpluses
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Explain how production quotas affect prices and quantity
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Explain the effects of sales taxes and subsidies on markets
Markets Matter
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Supply and demand remain relevant even when a single corporation dominates a market
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A "perfectly competitive" market is one without dominant firms or government interference where supply and demand determine prices
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Competitive markets only function effectively if truly competitive
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When many participants buy or sell in a market, the benefits of competition decrease
Example - Fusion Car Pricing
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A firm can price a Fusion car at any desired level
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To sell all its output it must set the price at or below $20,000
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Offering cars for more than $25,000 would lead to unsold vehicles
LO2: Simultaneous Changes in Demand and Supply
- When supply and demand change simultaneously, the outcome on price or quantity is uncertain unless change magnitudes are identified
Scenario 1
- Simultaneous equal increases in supply and demand increase quantity but not price
Scenario 2
- A greater increase in demand than supply results in both increased quantity and price
Scenario 3
- A greater increase in supply than demand results in increased quantities but decreased prices
Conclusion- Demand and Supply
- An increase in both demand and supply leads to an increase in the equilibrium quantity
- However, unless change magnitudes are known, the resulting equilibrium price is uncertain
Determinants of Demand and Supply
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Demand Determinants: Consumer preferences, consumer incomes, prices of related products, expectations regarding future prices/incomes, population characteristics (size, distribution, age).
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Supply Determinants: Prices of productive resources, sales taxes/subsidies, technology, prices of substitutes in production, future expectations of suppliers, number of suppliers.
Test Your Understanding – Effects of Changes on Equilibrium
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Daycare Services: Increased mothers in the workforce and government subsidies will likely lead to an increase in equilibrium quantity and uncertain effects on price.
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Marijuana: Increased penalties for buying/selling will result in a decrease in quantity and an uncertain effect on price.
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Music Streaming: A new, more efficient method and increase in consumers streaming music content directly onto personal computers will likely result in a decrease in price and an increase in quantity.
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Vegetarianism: Increased vegetarianism and stricter organic food regulations will result in an uncertain effect on price and an uncertain effect on quantity
LO3: How Well Do Markets Work?
- Markets don't always adapt quickly enough
- Markets may produce unequal results
- Some goods/services may not have truly competitive markets
LO4: Price Ceilings
- Price ceilings are government-imposed maximum prices for a product
- Price ceilings are implemented when the current market price for a product is believed to be excessively high
- Price ceilings often cause shortages
- Examples include wartime necessities and rental controls
Allocating Shortages in a Price Ceilling Market
- The market (supply and demand), lottery, first-come-first-served, producers' preferences, and government rationing
LO5: Price Floors
- Price floors are government-imposed minimum prices for a product
- Price floors are often applied when the current market price is considered too low for producers
- Price floors often cause surpluses
LO6: Production Quotas
- A production quota is a government restriction on the output of a product.
- A quota can increase the price of a product without creating a surplus
LO7: Taxes and Subsidies
- Excise Taxes: Sales taxes on products like alcohol, gasoline, and cigarettes. Carbon taxes are also considered excise taxes. Excise taxes, whether collected from the buyer or the seller, decrease equilibrium quantity
- Subsidies: Government payments intended to encourage production or consumption; subsidies increase quantity.
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Description
This quiz explores the fundamental principles of supply and demand in various market structures, including non-competitive environments. You'll learn about factors like price ceilings, floors, production quotas, and the implications of taxation and subsidies on market behavior. Test your understanding of how these concepts affect equilibrium prices and quantities in real-world scenarios.